Constraints Analysis

Partnership for Growth

This constraints to growth analysis (CA) was prepared by a joint technical team composed of economists from the Government of El Salvador and the Government of the United States. Its purpose is to provide an analytical and empirical foundation for joint efforts to promote broad-based economic growth in El Salvador. These efforts will be undertaken as part of Partnerships for Growth (PfG), an effort by the Obama Administration to foster growth in a select number of countries and seed the next generation of emerging markets. The exercise of analyzing growth restrictions under the Partnerships for Growth has been enriching for both governments, as it has helped to deepen the shared understanding of the problems of economic growth in El Salvador. All four of the countries selected for the Partnerships for Growth undertake a Constraints Analysis following the growth diagnostics methodology developed by Hausmann, Rodrik, and Velasco (HRV). The results of these studies are intended to facilitate planning of a consensus set of near-term public policies agreed to by the partner country and United States governments aimed to improve investment and economic growth.

This analysis drew on information from a wide variety of sources, including data provided by various entities of the Government of El Salvador, analysis from international organizations (including the International Monetary Fund, the World Bank, and the Inter-American Development Bank), and the work of independent experts. It also benefited from various consultations and seven total focus groups over a period of three months with a variety of stakeholders in El Salvador, including government officials, entrepreneurs, and academics.

Using this data and internationally comparable indicators, surveys, cross-sectional and panel data, graphical, statistical, and regression analysis and other tools, it systematically analyzes potential factors that may be hindering private investment in the economy. It identifies two binding constraints to growth—factors that, based on the available evidence, can be said to be the most critical obstacles to private investment and to economic growth. These constraints impose a very significant cost—or .shadow price.—on the economy.